Published — June 1, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Read also: WHEN DOES STOCK CORPORATION BECOME NON-STOCK?
Powers of a Stock Corporation are found in Title IV of the Revised Corporation Code of the Philippines under Sections 35 – 44.
Section 35 of the Revised Corporation Code (RCC) refers to the general powers and capacity of stock or non-stock corporations, which are the following:
- To sue and be sued in its corporate name;
- To have perpetual existence unless the certificate of incorporation provides otherwise;
- To adopt and use a corporate seal;
- To amend its Articles of Incorporation in accordance with the provisions of the RCC;
- To adopt by laws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code;
- In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of the RCC; and to admit members to the corporation if it be a nonstock corporation;
- To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
- To enter into partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons;
- To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic or similar purposes.
Note: Foreign corporations are not allowed to give donations in aid of any political party or candidate or for purposes of partisan political activity
- To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and
- To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.
In addition to the above-stated general powers and capacity of stock corporations, the specific powers are the following:
- Power to Extend or Shorten Corporate Term
A stock corporation may extend or shorten its term in the
AI only when approved by a majority vote of the Board of Directors and ratified at a stockholder’s meeting by at least two-thirds (2/3) of the outstanding capital stock. In case of extension of a corporate term, a dissenting stockholder may exercise his right of appraisal under the provisions of the RCC.
- Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness
Before the corporation may exercise this power, it must first be approved by a majority vote of the Board of Directors and by two-thirds (2/3) of the outstanding capital stock at a stockholder’s meeting duly called for such purpose.
- Power to Deny Preemptive Right
Generally, stockholders enjoy a preemptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings. However, one of the powers of a stock corporation is to deny such right through a provision in their Articles of Incorporation. In case the Articles of Incorporation do not mention such power of the corporation to deny preemptive right, the corporation may still amend the same to reflect and exercise their power to deny said preemptive right.
- Power to Sell or Dispose Assets
By a majority vote of its Board of Directors, the corporation may sell, lease, exchange, mortgage, pledge, or otherwise dispose any of its property or assets. However, a sale of all or substantially all of the corporation’s properties and assets, including its goodwill, must be authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock in a stockholder’s meeting duly called for the same purpose.
- Power to Acquire Own Shares
A corporation WITH unrestricted retained earnings to cover the shares to be purchased or acquired shall have the power to acquire its own shares for a legitimate corporate purpose or purposes
- Power to Invest Corporate Funds in Another Corporation or Business or for Any Other Purpose
Yes, a private corporation may invest its funds in other corporations, business, or for any other purpose other than the primary purpose for which it was organized. However, the private corporation may do so ONLY when approved by a majority of the Board of Directors AND ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a meeting duly called for such purpose.
Note: Any dissenting stockholder may exercise his or her appraisal right in accordance with the provisions of the Revised Corporation Code.
Question: Is there an instance when the approval of the stockholders shall not be necessary?
Yes, where the investment by the corporation is reasonably necessary to accomplish the primary purpose of the corporation as stated in the articles of incorporation.
- Power to Declare Dividends
By a majority vote, the Board of Directors may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them. Please take note that no stock dividend shall be issued without the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the same purpose.
Question: Are delinquent stocks entitled to dividends?
Answer: Yes. However, cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses. Stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid.
- Power to Enter into Management Contract
A corporation may conclude a management contract with another corporation provided such contract is approved by the Board of Directors and by stockholders owning at least the majority of the outstanding capital stock, of both the managing and the managed corporation, at a meeting duly called for the same purpose.
However, when a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation or when a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation, then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote.
The same applies to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise. In case a service contract or operating agreement relates to the exploration, development, exploitation or utilization of natural resources, the same is regulated by pertinent laws and other regulations.
Note: No management contract shall be entered into for a period longer than five (5) years for any one (1) term.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
All rights reserved.
SUBSCRIBE NOW FOR MORE LEGAL UPDATES!
[email-subscribers-form id=”4″]